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Weekly Update
Markets have a tendency to do what they can to surprise the masses. We see this occur often, particularly when we try to relate the news to market events. GameStop was an exaggerated example of this. GameStop, a brick-and-mortar shop where you can purchase physical copies of video games, is a dinosaur company. Video games are easily downloaded straight to gaming consoles today, and there is a possibility that the video game store may be the next Blockbuster. I think it is safe to assume that the masses were surprised when a flood of internet investors drove the stock price up from $4 per share in August to nearly $500 per share in late January. I think most speculators that took a position in the stock after it had already hit the news cycle were equally surprised when it did not continue to go up, and in fact dropped -89% from the peak in about a week’s time.
December 11, 2020
Stocks are liquid and driven by supply & demand. Simply put, there is a time to own certain asset classes, and a time not to. Market leadership tends to rotate. For most of 2020, technology (specifically large cap technology) has dominated the markets on a relative basis. Small cap stocks had previously the rest of the markets and are now playing a little game of catch-up.
The two charts below show the Russell 2000, which is an index of small cap stocks, and the Nasdaq, an index of mostly tech-related stocks. You can see that in the chart below, the Nasdaq’s relative strength to the S&P 500 has been on a rapid rise in 2020, while the Russell 2000’s relative strength had previously struggled versus the S&P 500. Recently, however, the Nasdaq’s relative strength versus the large cap index has been flat, while the Russell 2000 (small cap stocks) has rapidly increased over the past few months: